Business credit can help companies fund their ventures, pay for office and production supplies and build relationships within the surrounding professional community. This is ideal for business communities, because it allows contacts to be made and partnerships to be formed, all while offering reputable products or services. But as many small-business owners may be having difficult times with business loans, other options may become available. Trade credit is increasingly becoming one of those options.
A survey by the National Federation of Independent Business showed that small businesses may still have a hard time accessing credit even as the country comes out of the economic recession. At the beginning of 2012, the number of small-firm owners who were in possession of a business loan fell from 44 percent in 2008 to 29 percent. Many are still wary about financial issues that are to come.
Trade credit purpose
In searching for other financing options, small-business owners may come across trade credit. While there is no perfect scenario for lending, trade credit may offer a more ideal opportunity to carry on business proceedings in an effective manner. As the U.S. Small Business Administration points out, business credit options are changing, and many companies are turning to surrounding firms for support.
Trade credit is established between lenders and customers with the option of installing a grace period before paying for the credit in cash. This is the most basic form of trade credit and is increasingly becoming a useful and popular financial alternative. Customers are able to control their cash flow better and grow their business despite having borrowed money.
Trade Credit advantages
More companies are turning to trade credit because obtaining loans from banks is somewhat difficult these days, says Small Business Trends. By choosing to pay money back faster instead of accepting lender discounts, borrowers obtain a short-term loan. This is ideal for small-business owners, because they are getting the funds they need to run their business without having to deal with the hassle of lending from a bank. This type of business credit is also a sales tactic: trade credit lenders show customers that they offer high-quality products, thus attracting specialized company buyers and offering trade credit at a cheaper price.